Why there’s no such thing as a little white lie in short-term insurance
When you take out a short-term insurance policy, the responsibility lies with you to provide your insurer with all the necessary information so that it can correctly underwrite your risk.
The information you provide at sales stage is used to enable your insurer to accurately determine whether or not to cover you, what premium to charge and whether the policy should be endorsed with special conditions.
Your insurer’s rights and responsibilities
The Policyholder Protection Rules requires the insurer to design its sales questionnaire so that it can readily draw out from you the correct answers which are required to underwrite the risk. The insurer is also required to explain to you the purpose of the questions, and the fact that a claim can be rejected if you have provided incorrect information. If incorrect information is provided unintentionally, your insurer may still pay out your claim but is not obliged to.
The Office of the Ombudsman for Short-Term Insurance (OSTI) sees far too many complaints where policyholders intentionally provided incorrect details at sales stage in the hope of paying a cheaper premium. The insurer then rejects a claim on the basis of a material misrepresentation or non-disclosure at sales stage.
According to the OSTI the types of important information policyholders sometimes neglect to reveal is having suffered previous losses or cover refused by a previous insurer. If you misrepresent or fail to disclose material facts to the insurer, your policy may be cancelled with effect from the start date.
You’ll then be entitled to receive a refund of all premiums paid since the start date, but this is cold comfort when you suffer a big loss, such as when your vehicle is a write-off or your home burgled.
Your duty to disclose does not end once the cover starts. You are required to inform your insurer of any material change to your circumstances throughout the life of the policy. For example, in the case of a car, the OSTI says such material events may include a change in address, regular driver, number of claims submitted and so forth.
Misrepresentation at claim stage
It is, without a doubt, vitally important that you are truthful about the circumstances prompting a you to claim. The insurer needs to establish the facts surrounding the loss so as to determine its liability in terms of the policy.
The OSTI explains that most insurance policies contain a clause entitling the insurer to reject the entire claim even if just one aspect of it is found to be dishonest. Insurers do detailed investigations of a claim, and at this stage any misrepresentation would invariably be revealed. For instance, on a vehicle accident claim it may perform an assessment interview with witnesses, including the third party, tow operators and the police. The insurer may also request medical reports, bank statements, vehicle tracking reports and cell phone beacons and billing to ascertain whether the policyholder complied with the terms and conditions of the insurance contract.
What would happen if you are dishonest?
Should your insurer find that you were dishonest or misrepresented facts and decide to cancel your policy you will find it difficult to be insured by any other provider in future.
According to the OSTI fraudulent claims are a major challenge to the short-term insurance industry. To reduce the number of fraudulent claims, insurers appoint investigators to validate high value or suspicious claims.
Though the burden of proving fraud is high, and lies with the insurer, the implications are serious. A fraudulent claim may not only result in a claim being rejected or the cancellation of a policy, but the matter may be reported to the police.
Therefore, to make sure you have valid and on-going cover, you as a consumer need to pay close attention to your dealings with your insurer. Always provide true and accurate information and review and update your information regularly.